Emerging revenue stream a potential asset for future ABS deals

More consumers are using electronic disbursement services through the telephone and Internet to make last minute payments on credit cards, mortgages and other bills, according to a survey completed in April.

The fees attached to such expedited payments are an increasing source of revenue for servicers, and one day they could be securitized, said market sources. In April, San Carlos, Calif.-based Crone Consulting and Javelin Strategy & Research, Pleasanton, Calif., surveyed 2,038 people about how they prefer to pay their various bills, including utility, cell phone, Internet service and other monthly bills. The companies conducted the survey on behalf of of San Diego-based FortKnox, a company that facilitates payments.

A quarter of respondents said they prefer to pay through each service provider's Web site. Another 22% said they like to send payments through their bank or credit union.

As for those consumers who rushed in payments to avoid incurring late fees, 44% preferred to make their payments by phone and about 40% did so through the Internet. The study revealed that when consumers use expedited payments, they do so for credit cards most commonly, followed by utilities, car and mortgage loans, phone and cable or dish services as well as insurance.

Many consumers said they were willing to pay a convenience fee of $1 to $5 to avoid a late fee or any potentially negative effect on their credit rating, according to Crone Consulting. Overall in 2005, servicers took home about $716 million in expedited payment fees, and that could grow to between $1 billion and $2 billion by 2008, the company said. Servicers earn money through interest on accounts and late fees, among other fees. Many view the eleventh hour payer as a cost of doing business, but with the technological options available to banks and other account servicers, they should see it as a line of business.

"It's been a sleepy opportunity," said Richard Crone, founder of Crone Consulting. "I think it is a significant source of revenue that the industry needs to look at, in terms of it being an opportunity for securitizing."

There is strong consumer demand for expedited payment services. About one out of every four households is expected to do one expedited payment a year, which is fairly consistent with about 3% to 5% of mortgage servicers' portfolios, said Crone. However, the infrastructure to meet the demand is not there, as many servicers do not offer expedited payment capabilities.

In the current business environment, where the value of a servicer is tied to its loan portfolio, those that do not offer an expedited payment option, and those who offer it but do not charge a fee, are "leaving money on the table" and might be considered less valuable going forward, said Crone.

For now, though, it appears the expedited payment route is no threat to traditional payment methods. The largest portion of respondents, 28%, still said they preferred to pay their bills through the mail.